Annual Report 1999
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Akzo Nobel Annual Report 1999 Annual Report 1999 PROFILE Akzo Nobel is an international company that serves customers around the world with healthcare products, coatings, and chemicals. The fibers business, which operated as a stand-alone company under the name Acordis, was divested at year- end 1999. Akzo Nobel has a two-layer top structure: business units in Pharma, Coatings, and Chemicals, and a corporate center. Headquartered in the Netherlands, Akzo Nobel has activities in 75 countries and employed 85,000 people during 1999. Sales in 1999 were EUR 14.4 billion, with Pharma, Coatings, and Chemicals accounting for EUR 2.9 billion, EUR 5.5 billion, and EUR 3.8 billion. With 17,000 employees, Acordis contributed EUR 2.2 billion. The corporate center coordinates key tasks in such areas as strategy; finance and control; human resources; technology; legal affairs and intellectual property; communications; health, safety, and environment; information management; and risk and insurance management. ▼ COMPANY STATEMENT (please turn over) Gross cash flow Operating income before nonrecurring items plus depreciation of property, plant and equipment, and amortization of intangible assets Cash flow per share Net income excluding extraordinary and nonrecurring items plus depreciation of property, plant and equipment, and amortization of intangible assets, divided by the weighted average number of common shares outstanding Net income (excluding extraordinary and nonrecurring items) per share Net income (excluding extraordinary and nonrecurring items) divided by the weighted average number of common shares outstanding Shareholders’ equity per share Akzo Nobel N.V. shareholders’ equity divided by the number of common shares outstanding at December 31 Working capital Inventories and receivables less current liabilities, exclusive of dividends Invested capital Total assets less cash and cash equivalents and less current liabilities Equity Akzo Nobel N.V. shareholders’ equity plus minority interest Net interest-bearing debt Long-term debt plus short-term borrowings less cash and cash equivalents Gearing Net interest-bearing debt divided by equity Interest coverage Operating income before nonrecurring items divided by financing charges In the computation of ratios, the amounts used for invested capital and shareholders’ equity represent averages for the year. CONTENTS 2 Financial Highlights 3 Chairman’s Statement 6 Corporate Governance 8 Report of the Supervisory Board 12 Milestones in 1999 13 Report of the Board of Management 13 General 13 Strategy 13 Financial Performance 17 Dividend Proposal 17 Outlook for 2000 18 People at Akzo Nobel 18 Research and Development 18 Engineering 19 Health, Safety, and Environment 19 Akzo Nobel in Society 21 Akzo Nobel Shareholders 23 Business Activities 24 Akzo Nobel’s Products and Markets 26 Key Figures and Ratios 29 Pharma 39 Coatings 49 Chemicals 59 Acordis 63 Financial Statements 64 Summary of Significant Accounting Policies 66 Consolidated Financial Statements 77 Financial Statements of Akzo Nobel N.V. 84 Other Information 84 Auditors’ Report 87 Financial Summary AKZO NOBEL ANNUAL REPORT 1999 1 FINANCIAL HIGHLIGHTS Net income, excluding extraordinary Operating income before and nonrecurring items, Net sales nonrecurring items and dividend per common share (billions of euros) (millions of euros) (in euros) 95 96 97 98 99 95 96 97 98 99 95 96 97 98 99 15 1,500 3 10 1,000 2 5 500 1 Pharma Coatings Chemicals Acordis 0 0 0 Excluding Acordis Millions of euros (EUR) 1999 1998* 1999 1998 Net sales 14,432 12,482 12,190 10,535 Operating income – before nonrecurring items 1,364 1,242 1,426 1,178 – after nonrecurring items 1,323 1,077 1,385 1,033 Net income excluding extraordinary and nonrecurring items 759 703 Net income 204 574 Cash flow 1,005 1,273 Shareholders’ equity 1,861 1,899 Property, plant and equipment – expenditures 797 819 690 684 – depreciation 740 661 582 530 Per common share, in EUR Net income excluding extraordinary and nonrecurring items 2.66 2.46 Net income 0.71 2.01 Cash flow 5.33 4.82 Dividend 1.00 0.98 Shareholders’ equity 6.51 6.66 Key ratios Operating income before nonrecurring items – as percent of net sales (ROS) 9.5 10.0 11.7 11.2 – as percent of invested capital (ROI) 15.5 16.2 20.0 18.9 Interest coverage 5.0 6.0 Gearing 2.26 2.30 Number of employees at year end 68,000 85,900 68,000 67,600 * Restated for change in accounting principles. Reference is made to Change in Accounting Principles on page 64. ▼ For definitions of certain financial ratios and concepts 2 see back cover foldout. CHAIRMAN’S STATEMENT Dear Shareholders, Announced as a year of consolidation, 1999 proved to In view of the great uncertainties in the world economy be one of the busiest years in our recent history. Almost at the end of 1998, we had refrained from giving an 30 years to the day after the creation in 1969 of Akzo, income forecast for 1999. As the year progressed, we with fibers company AKU as one of the founding fathers, indicated that a net income of the same order of we took the historic decision to separate from Fibers. magnitude as in 1998 would be achievable. We are At the same time, the acquisition of Hoechst Roussel happy to report that this target has been surpassed Vet (HR Vet—our third largest acquisition ever— with a net income of EUR 759 million, excluding catapulted us into the top league in the world animal nonrecurring and extraordinary items. As a result, a per health market and thus further strengthened our share dividend of EUR 1.00 will be proposed to the position in pharmaceuticals. But, as planned, the General Meeting of Shareholders. general emphasis was on consolidation and allocation of special management time to the integration of the The economic environment in which these results were companies acquired in 1998, and on the restructuring achieved, can be characterized by a weak start but a of our Corporate head office. We also brought strong finish. In the first two months, all economic investment levels close to depreciation. All these moves indicators were still down, but March surprised us with strongly affected our financial statements, which are its unexpected strength. The U.S. economy continued therefore difficult to compare to previous years. its strong performance, and the smaller countries in Europe, including Scandinavia, Ireland, the Benelux, Strong performance of continuing operations and Spain, followed in its wake. The major economies of Germany, France, Britain, and Italy were initially lagging Our sales, net of acquisitions and divestments, grew behind, but as the year advanced they began to gain 5 percent. Pharma achieved double-digit sales growth momentum as well. Asia showed a remarkably quick for the third year in succession, while Chemicals and recovery, with some countries achieving growth rates of Coatings resumed real growth, with sales volumes up over 5 percent by the middle of the year. The strong 5 percent in the second half of 1999. These sound rates dollar underpinned this process of recovery. helped offset the really dramatic downturn in trading conditions for our Fibers operations: volumes in some textile segments dropped 40 percent in 1999, a decline unparalleled since the crisis in the seventies. AKZO NOBEL ANNUAL REPORT 1999 3 Against this general backdrop, our Pharma operations employees has strengthened our conviction that it was broke all previous records. Organon’s U.S. subsidiary the right thing to do. was the star performer, increasing its sales by more than 50 percent for the third consecutive year. Fibers’ exit has fundamentally changed the composition Employing 500 salesmen in 1996, it entered the new and face of Akzo Nobel. Whereas in 1969 we were millennium with 1,250 reps. Organon also structurally largely a Fibers company, today we are much more strengthened its position in Japan by acquiring the balanced. We are growing fast in pharmaceuticals, pharmaceutical business of Kanebo. By the end of the where we hold a leading position in, among others, year we acquired HR Vet, a long coveted partner for female healthcare and have become a world player in Intervet. We now have a full product range— animal healthcare. We are the world’s leading coatings pharmaceuticals and vaccines—with virtually worldwide company with a broad platform for further growth and coverage in the animal health market. Diosynth and hold leading positions in important markets for Organon Teknika also put in strong performances. specialty chemicals. Each of these three basic activities contributes substantially to operating income: Pharma The many acquisitions in coatings made in 1998, but by 40 percent, and Coatings and Chemicals in the order particularly that of Courtaulds, called for sustained of 35 and 25 percent. Given these three activities, the integration and consolidation efforts in 1999. Even so, market sees us as well focused. Coatings managed to produce healthy growth figures. Industrial sales were higher and, helped by a much Positive outlook better summer, Decorative Coatings’ sales in Europe clearly exceeded previous years. Unfortunately, we had A better balanced company should also have higher to divest the aerospace business of the former ambitions. We will focus strongly on value creation and Courtaulds, following a decision by the European reinforcement of internal coherence with strong antitrust authorities. The average operating margin emphasis on optimal exploitation of the synergy improved, reflecting strict cost control. potential between our businesses. An unexpected recovery in the world chemicals market The macroeconomic outlook for Europe is positive for led to a strong sales and income performance for the year ahead, and no fundamental weakening of the Chemicals, particularly in the second half of the year. U.S. economy is foreseen. Asia and Latin America Most satisfying, however, is the fact that we clearly see continue to show a recovery to growth rates typical of the results of the heavy investment and profit emerging markets.